TIPS & TRICKS
The Truth About VA Loan Fees

One of the biggest myths we see circulating in the real estate world is the idea that sellers are required to pay specific VA loan fees because veterans “cannot” pay them. Let’s set the record straight with the facts, backed by the VA Lender’s Handbook.

The Myth: Sellers Are Required to Pay Certain VA Fees

Many Realtors believe that fees like escrow, settlement, or underwriting costs must be paid by the seller. While these fees are categorized as “non-allowable” fees under VA loan rules, that doesn’t mean the seller is automatically responsible for paying them.

The Reality: Veterans CAN Pay Non-Allowable Fees (Within Limits)

The VA’s 1% rule protects veterans by capping the total loan-related fees they can pay to 1% of the loan amount. If the lender does not charge an origination fee, non-allowable fees—like escrow or underwriting fees—can be included within this 1% cap.

This means there’s no requirement for the seller to cover these fees unless it’s specifically negotiated in the contract.

Backed by the Guidelines

Here’s what the VA Lender’s Handbook (Chapter 8) says about the 1% rule and non-allowable fees:

1. Lenders are allowed to charge veterans up to 1% of the loan amount for loan-related costs.

2. If the lender does NOT charge an origination fee, this cap can absorb fees that are typically non-allowable (like escrow fees).

3. Discount points, VA funding fees, and prepaid items (e.g., taxes, insurance) are NOT part of the 1% cap, as they are separate closing costs.

👉 Full VA guidelines available here: VA Lender’s Handbook, Chapter 8

Breaking Down the Numbers:

Loan Amount: $700,000
1% Cap: $7,000
Fees Charged:

• Escrow Fee: $2,500

• Underwriting Fee: $1,150

• Total: $3,650

In this case, the fees fall well within the 1% cap, so the veteran can pay these costs without needing a seller credit or other concessions.

Why This Matters for Realtors:

• Sellers are NOT required to cover VA-specific fees. This is a common misconception.

• Veterans are allowed to pay these fees, as long as the total loan-related costs fall within the 1% cap.

• Discount points, the VA funding fee, and other prepaid items are separate from the cap, giving more flexibility for structuring the deal.

The Bottom Line:

Understanding the 1% rule and how non-allowable fees work can help you educate your Realtor partners and ensure smoother VA loan transactions. By dispelling this myth, you’ll empower your partners to better serve their veteran clients and help everyone avoid unnecessary confusion.

💡 Questions about VA loans or fee structures? Let’s connect and make sure you’re ready for your next VA deal!